Common JV Disputes and How They End

What Happens

Construction comes in 10–25% over budget. The sponsor calls additional capital. Capital partners feel sandbagged because the original budget was 'guaranteed.'

How It Ends

Either capital funds the call (with dilution), or there is a forced sale and the project is sold mid-construction at a loss to all parties.

Prevention

GMP construction contract, real contingency in the original budget (8–12%), and a budget variance reporting requirement.

What Happens

Sponsor or builder upgrades finishes, expands the scope, or adds amenities mid-project — and bills the JV. Other partners see this as a unilateral spend decision.

How It Ends

Usually a blame allocation negotiation. If unresolved, dispute resolution clause kicks in.

Prevention

Major-decision threshold for any scope change above a stated dollar amount.

What Happens

A capital partner fails to fund a call. The other partners now have to either dilute the defaulter or fund the gap themselves.

How It Ends

Default remedies in the agreement determine the outcome — dilution, penalty interest, or forced sale of the defaulting interest.

Prevention

Specific, mechanical default remedies in the JV agreement before closing.

What Happens

The builder partner uses a related-party trade and the markup exceeds market rates. Other partners discover this through an invoice audit.

How It Ends

Usually a partial refund and a softer governance amendment. In bad cases, removal of the sponsor.

Prevention

Disclosure requirement for related parties + cap on markup + audit right.

What Happens

At stabilization, the sponsor wants to refinance and hold; the capital partner wants to sell and exit. The JV agreement says both are allowed.

How It Ends

Buy-sell mechanism is invoked, or the sponsor brings in replacement capital to take out the original capital partner.

Prevention

Clear default direction in the JV agreement: hold or sell as the base case, with a mechanism to override.

What Happens

A partner dies or becomes incapacitated mid-project. Their interest passes to an estate or attorney who has no relationship with the other partners.

How It Ends

Forced buyout under the agreement, or a long messy probate process.

Prevention

Death/incapacity buyout trigger with insurance funding (key-person life insurance held by the JV).